ISDA Chief Executive Officer Scott O'Malia offers informal comments on important OTC derivatives issues in derivatiViews, reflecting ISDA's long-held commitment to making the market safer and more efficient.

This year will be particularly busy for those focused on regulatory reporting. Five jurisdictions will go live with revised reporting requirements in a matter of months, stretching reporting teams to the limit as they interpret what each set of rules is asking and change their processes accordingly. Get it wrong, and regulatory penalties could follow. There is a better way – a digital approach will not only ensure accurate reporting, but will create significant efficiencies, saving costs and allowing internal resources to be redeployed.

In coordination with industry participants, ISDA has worked to extend its Digital Regulatory Reporting (DRR) initiative to cover the rush of reporting rules, which starts with Japan on April 1, followed by the EU on April 29, the UK on September 30 and Australia and Singapore on October 21. In each case, regulators are revising their rules to incorporate globally agreed data standards in an effort to improve the cross-border consistency of what is reported and the format in which it is submitted – a process that started in December 2022 with the rollout of the first phase of the US Commodity Futures Trading Committee’s revised swap data reporting rules.

This is a big step forward, but it won’t mean the rules will be identical – variations will continue to exist, meaning under-pressure teams can’t just take the work completed for one location and apply it to another. Each set of requirements will need to be individually reviewed, interpreted and then applied, but there’s no guarantee each firm will interpret the requirements in the same way, leading to continuing errors and inconsistencies – not to mention the potential for regulatory censure for those firms that get it wrong.

ISDA’s DRR addresses this by establishing a golden-source interpretation of each rule set, reviewed and agreed by an industry committee. The Common Domain Model (CDM) is then used to convert this mutualized interpretation into machine-readable code, which firms can apply directly as the basis of their implementation, confident that it will meet regulatory requirements.

As with any IT implementation, this will involve some initial work – for example, firms will need to ensure their data is based on the CDM, a free-to-use standard for financial products, trades in those products and the lifecycle events of those trades.

However, the benefits are substantial. Firms will cut the costs and burden of interpreting and implementing each set of rules themselves, and then repeating that work if the rules change in future. Instead, firms can implement a code that has been validated and tested by industry participants and will be updated as rules are amended, reducing time and effort, and enabling resources to be reassigned to other projects. As the DRR is based on a single industry interpretation of each set of requirements and will be fully accessible to regulators, the potential for regulatory penalties due to misreported data is also reduced.

A number of firms on both the buy and sell side have already committed to using the DRR to help with their implementation. As the reporting rule rush picks up pace, we think the DRR will appeal to more and more institutions as a way of meeting and maintaining their regulatory reporting commitments efficiently and cost effectively.

Find out more about ISDA DRR here or contact for more information.

Find out more about the CDM here.

The ISDA AGM on April 16-18, 2024 will feature sessions on regulatory reporting, including a demonstration of the DRR. Click here to register.

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